How a Reddit Forum Moved a Forgotten Stock 900 Percent in 48 Hours — and the SEC Is Not Happy

Imagine a Tuesday afternoon in early 2021 at a GameStop store. There are rows of used game cartridges in plastic cases, fluorescent lighting, and a few staff members wearing logo shirts who are waiting for clients who have largely stopped coming years ago. For the better part of ten years, the company had been quietly bleeding out as it watched its mall locations close and lost ground to digital downloads and streaming services. The eulogy had already been written by the majority of Wall Street. After selling short about 140% of the company’s publicly traded float, hedge funds were positioned to profit from its demise. This was such a high percentage that Goldman Sachs analysts later pointed out that it had only happened fifteen times in the preceding ten years. Nobody anticipated what would happen next.

The internet was the next development. In particular, a section of Reddit known as r/WallStreetBets, which gained notoriety for its high-risk trading, crude humor, and general disdain for the type of institutional money that denigrates individual investors.

The community focused on GameStop at some point in late 2020 and accelerated significantly in January 2021 with a particular and not wholly simplistic thesis: the stock was being aggressively shorted, it was arguably undervalued, and if enough people bought in at the same time, the short sellers would be forced to cover their positions by buying back shares, driving the price higher, forcing more covering, and so on. A traditional short squeeze. However, this one was organized in a public forum by individuals sharing memes with screenshots from their brokerage, rather than in a hedge fund boardroom.

Keith Gill, a 34-year-old marketing expert and Chartered Financial Analyst from Massachusetts who goes by “DeepFuckingValue” on the internet and “Roaring Kitty” on YouTube, was primarily in charge of creating the first case. In 2019, Gill began purchasing GameStop call options for about $53,000. He posted frequent updates on r/WallStreetBets, detailing weeks of agonizing losses along with his unwavering belief that the company was worth more than the market was acknowledging. That $53,000 position had increased to about $48 million by January 27, 2021. He subsequently expressed his belief that the trade would be profitable. The scope of what came next was beyond his wildest expectations.

The r/WallStreetBets subreddit saw 73 million page views in a single day on January 27. By January 29, there were 6 million users in the community, an overnight increase of 1.5 million. They weren’t just passive readers. They were making purchases. On January 28, GameStop’s stock, which had started the year at about $17.25 per share, reached a pre-market peak of over $500, which is almost thirty times its January starting price. Melvin Capital, a hedge fund that had a sizable short position in the stock, suffered losses that, according to any traditional interpretation of market risk, would have been catastrophic. Nobody on the purchasing side may have thought it would go that far. Nevertheless, it did.

Robinhood then engaged the brake. Due to its incapacity to post enough collateral with clearinghouses to fulfill the volume of orders it was receiving, the app-based brokerage stopped buying GameStop and a number of other heavily shorted stocks on January 28. Not only did retail traders feel that they were being shielded from winning, but politicians from all walks of life also reacted angrily to the move, perceiving it as the system defending itself. Numerous class action lawsuits ensued. A hearing was held by the U.S. House Committee on Financial Services. The CEO of Robinhood was forced to testify before Congress in a manner that the company had undoubtedly not anticipated when it developed its upbeat, gamified trading interface.

The precise nature of the GameStop squeeze is still up for serious discussion. A concerted effort to manipulate the market? A valid way for retail investors to express their feelings? Something in between, unprecedented and messy, that the current regulatory frameworks were just not designed to deal with? How the SEC will ultimately distinguish between a group of people working together to artificially inflate a price and a Reddit community exchanging investment ideas is still up in the air. Legally speaking, the distinction might come down to intent, which is notoriously hard to prove when there are millions of participants and they communicate using reaction GIFs and anonymous usernames.

Separate from the financial mechanics, it’s difficult to overlook the cultural significance of the GameStop saga when observing it all from a distance. This wasn’t just about money for many of the buyers. It was about witnessing institutional money, which moves markets covertly, profits from failure, and seldom faces repercussions, get caught on the wrong side of a trade that it believed was certain.

The forum itself never fully considered whether that satisfaction was earned or if it came at the expense of retail investors who bought close to the peak and held on for too long. For what it’s worth, GameStop is still in business. The shops remain in existence. The fluorescent lights remain on.